Holding

Section 115WB(3) provides exemption only for benefits covered by sub‑section (1) and does not extend to transport provided to offshore employees, and ‘residence’ is not confined to India, making the employer liable to Fringe Benefit Tax.

Summary

R & B Falcon (A) Pvt. Ltd., an Australian company supplying offshore drilling rigs and crew, provided free air and helicopter transport for its foreign‑resident employees from their home countries to the rig in India and back. The company sought an advance ruling which held that the transport expense was liable to Fringe Benefit Tax (FBT) because the exemption under Section 115WB(3) applied only to employees residing in India. On appeal, the Supreme Court examined the interpretation of Sections 115WB(1), (2) and (3) and held that the exemption in (3) does not cover the transport benefit and that the term “residence” is not limited to India. Consequently, the employer remains liable to FBT, but the AAR was correct that sub‑section (2) matters are outside the scope of (3). The Court also ruled that the AAR could not decide the liability based on the nature of the expense as that issue was not referred. The appeal was partly allowed, confirming the liability to FBT while correcting the AAR’s view on residence.

Issues considered

The exemption under Section 115WB(3) applies to transport benefits provided to employees whose residence is outside India
The meaning of ‘residence’ in Section 115WB(3) – whether it is limited to India
Whether the transport expense falls within the exemption provision of Section 115WB(3) or is chargeable under Section 115WB(1) and (2)
Whether the Authority of Advance Ruling could determine liability on the nature of the travelling expenditure
Interpretation of the relationship between Sections 115WB(1), (2) and (3)

Legislation cited

Income Tax Act, 1961s. 115JB, s. 115WA, s. 115WB(1), s. 115WB(2), s. 115WB(3), s. 115WC, s. 40(1c), s. 9(1)(ii)

Subjects

Fringe Benefit TaxSection 115WBResidence definitionAdvance RulingInterpretation of statutesTransport benefitIncome Tax Act 1961Executive construction

Judgment

[2008] 7 S.C.R. 804
I
;....
A R & B FALCON (A) PVT. LTD.
v.
COMMISSIONER OF INCOME TAX
(Civil Appeal No. 3326 of 2008)

MAY 6, 2008
B
[S.B. SINHA AND V.S. SIRPURKAR, JJ.] ""-
Income Tax Act, 1961 - s. 115 WB - Fringe Benefit Tax
- Levy of - On Assessee-Company providing transportation
c to off-shore employees from their residence and home
countries outside India to the place of Rig and back-Authority
of Advance Ruling (AAR) opining that exemption provided
under sub~section (3) does not cover the matters enumerated
in sub-section (2) but those enumerated under sub-"section
(1 ); and that 'residence' within meaning of the provision would
D
mean residence in India - On the basis of opinion AAR also
holding the assessee-Company liable to pay the tax as the
nature of the travelling expenditure incurred by it did not attract
the provision of exemption - On appeal, held: AAR was right
in opining that matters enumerated in sub-section (2) are not
E covered by sub-section (3), but it was wrong in opining that
'residence' could mean residence in India - However, AAR
could not have decided the liability of the assessee to pay the
tax by determining the nature of the travelling expenditure
incurred by it as the issue was not referred for its opinion -
'F The question can be decided by the Assessing Authority
-...-
Appellant entered into a contract for supplying
Mobile Off-shore Drilling Rig (MOOR) alongwith equipment
and offshore crew on charter hire basis with a public
sector undertaking. It filed an application before Authority
G of Advance Ruling (AAR) on the question whether
transportation cost incurred by the petitioner in providing
' ...
transportation facility for movement of off-shore ....
employees from their residence in home country to the
place of work ~nd back is liable to Fringe Benefit Tax as
H 804 ,_
R & B FALCON (A) PVT. LTD. v. COMMISSIONER OF 805
INCOME TAX

provided under s. 115 WB of Income Tax Act, 1961. AAR A
opined that matters enumerated in sub-section (2) of s.
115 WB were not covered by sub-section (3) thereof,
providing exemption and the amenity in the nature of free
or subsidized transport was covered by sub-section (1 );
and that 'Residence' within the meaning of the said B
provision would mean residence in India and since the
employees concerned were residents of countries
outside India, sub-section (3) of s. 115 WB was not
applicable. It held that the appellant-company was liable
to pay the Fringe Benefit Tax for providing transportation C
to off-shore employees from their residence and home
countries outside India to the place of Rig and back. Hence
the present appeal.
Partly allowing the appeal, the Court
0
HELD: 1.1 The authority of Advance Ruling (AAR)
was right in its opinion that the matters enumerated in
sub-section (2) of Section 115WB of Income Tax Act, 1961
are not covered by sub-section (3) thereof, and the amenity
in the nature of free or subsidized transport is covered
by sub-section (1). [Para 19) [823-8) E
1.2. Sub-section (1) of Section 115WB contains the
interpretation section. It is in two parts. It provides for a
direct meaning, as also an expanded meaning. Expanded
meaning of the said provision is contained in sub-section F
(2). Whereas sub-section (1) takes within its sweep any
consideration for employment, inter alia, by way of
privilege service, facility or amenity directly or indirectly,
sub-section (2) thereof expands the said definition stating
as to when the fringe benefit would be deemed to have G
been provided. The expansive meaning of the said term
'benefits' by reason of a legal fiction created also brings
within its purview, benefits which would be deemed to
have been provided by the employer to his employees
during the previous year. Indisputably, sub-section (3) H
806 SUPREME COURT REPORTS (2008] 7 S.C.R.

\-·
A refers to sub-section (1) only. Ex facie, it does not have
any application in regard to the matters which have
been brought within the purview of the fringe benefit tax
by reason of application of the deeming provision. [Para
13) [819-F-H; 820-A-B]
B 1.3 Sub-sections (1) and (2), having regard to the
provisions of Section 115WA as also sub-section (3) of .;

Section 115WB, must be held to be operating in different '
fields. [Para 14) [820-G]
c 1.4 In the instant case, the employer incurs the said
expenditure as of necessity. It, therefore, clearly falls
within the purview of the words 'consideration for
employment'. If Fringe Benefits are provided for
consideration for employment, which is given or provided
•,
11
to the employee by way of an amenity, reimbursement or
otherwise; clearly clause (a) of sub-section (1) shall be
attracted. [Para 15) [821-D]
1.5 A statute, must be read in its entirety. What would
be the subject matter of tax is contained in sub-sections
E (1) and (2). Sub-section (3), therefore, provides for an
exemption. There cannot be any doubt or dispute that the
latter part of the contents of sub-section (3) must be given
its logical meaning. What is sought to be excluded must
be held to be included first. [Para 15] [821-E-F]
F 1.6 When the expenditure incurred by the employer
so as to enable the employee to undertake a journey from
his place of residence to the place of work or either
reimbursement of the amount of journey or free tickets
therefor are provided by him, the same, would come within
G the purview of the term 'by way of reimbursement or
otherwise'. [Para 16) [821-G-H]
1.7 As a general rule, 'otherwise' when following an
enumeration, should receive an ejusdem generis
.
'~

H interpretation. The words 'or otherwise', in law, when used
R & 8 FALCON (A) PVT. LTD. v. COMMISSIONER OF 807
INCOME TAX

as a general phrase following an enumeration of A
particulars, are commonly interpreted in a restricted
sense, as referring to such other matters as are kindred
to the classes. A statute should ordinarily be given a
purposive construction. [Paras 16 and 17] (822-C-E]
New India Assurance Company Ltd. v. Nusli Neville B
Wadia and Anr. 2007 (14) SCALE 556; Tanna and Modi v.
C. /. T., Mumbai XXV and Ors. 2007 (8) SCALE 511; Udai Singh
Dagar and Ors. v. Union of India (UOI) and Ors. 2007 (7)
SCALE 278 - referred to.
Monck v. Hilton, 46 LJMC 167 - referred to.
c
The Advanced Law Lexicon - referred to.
1.8 The Parliament, in introducing the concept of
fringe benefits, was clear in its mind in so far as on the
one hand it avoided imposition of double taxation, i.e., tax D
both on the hands of the employees and employers; on
the other, it intended to bring succour to the employers
offering some privilege, service, facility or amenity which
was otherwise thought to be necessary or expedient. If
any other construction is put to sub-sections (1) and (3), E
the purpose of grant of exemption shall be defeated. If
the latter part of sub-section (3) cannot be given any
meaning, it will result in an anomaly or absurdity. It is also
now a well settled principle of law that the court shall avoid
such constructions which would render a part of the F
statutory provision otiose or meaningless. [Para 18]
[822-F-H; 823-A]
Visitor and Ors. v. K. S. Misra 2007 (8) SCC 593;
Commissioner of Sa/es Tax, Delhi and Ors. v. Shri Krishna
Engg. Company and Ors. 2005 (2) SCC 692 - referred to. G

.f. 2.1 The statute does not say that the employee
concerned should be a resident of India. Fringe Benefit
Tax being a tax on expenditure; the only concern of the
rvenue wherefor should be as to whether such H
.' .
··~'
808 SUPREME COURT REPORTS [2008] 7 S.C.R.

A expenditure has been made. Appellant has a permanent
establishment in India. It pays income-tax in India. It carries
on business in India. It has for the purpose of carrying
out its business activities engaged persons from within
India or outside India. If it makes any expenditure for
B bringing any employee from abroad, the same would also
liable to be taken into consideration for the purpose of .J...
sub-section (1) of Section 115WB. AAR was not correct in
its view in reading the words 'in India' after the word
residence in sub-section (3). [Paras 20 and 21] [823-C-F]
c 2.2. If the reasonings of the AAR are taken to its logical
conclusion, the Central Board of Direct Taxes (CBDT)
Circular would not be attracted. An employer cannot afford
to lose on both the fronts. Its right to claim exemptions
either would be in respect of the employees who are based
D in India or who are not. If the said employees are required
to be based in India, sub-section (1) of Section 11 SWB
would not be attracted. However, if such expenditure
incurred is found to be as consideration for employment,
the same would also bring within its purview the
E employees who have been hired from outside the country.
For the purpose of obtaining the benefit of the said
exemption, however, the expenditure must be incurred
on the employees directly for the purposes mentioned
therein, namely, they are to be provided transport from
F their residence to the place of work or such place of work
to the place of residence. Any expenditure incurred for
any other purpose, namely, other than for their transport
from their residence to the place of work or from the place
of work to the place of residence would not attract the
G exemption provision. The Assessing Authority, therefore,
must, in each case, would have a right to scrutinize the
claim. [Para 22) [823-F-H and 824-A-B]
2.3 CBDT has the requisite jurisdiction to interpret
the provisions of Income-tax Act. The interpretation of
H
R & B FALCON (A) PVT. LTD. v. COMMISSIONER OF 809
INCOME TAX

CBDT being in the realm of executive construction, should A
ordinarily be held to be binding, save and except where it
violates any provisions of law or is contrary to any
judgment rendered by the courts. The reason for giving
effect to such executive construction is not only same as
contemporaneous which would come within the purview B
of the maxim temporania caste pesto, even in certain
situation a representation made by an authority like
Minister presenting the Bill before the Parliament may also
be found bound thereby. [Para 22) [824-C-E]
2.4 Rules of executive construction in a situation of c
this nature may also be applied. Where a representation
is made by the maker of legislation at the time of
introduction of the Bill or construction thereupon is put
by the executive upon its coming into force, the same
carries a great weight. [Para 23) [824-F] D
>t
Sedco Forex International Drill. Inc. and Ors. v.
Commissioner of Income Tax, Dehradun and Anr. 2005 (12)
sec 717 - distinguished.
R. V. National Asylum Support Service 2002 (1) E
W.L.R.2956; Pepper v. Hart 1993 A.C. 593; Wilson v. First
County Trust Ltd., 2004 (1) A.C. 816 - referred to.
"Executive estoppel Pepper v. Hart revisited" Article by
Francis Bennion published in Public Law, Spring 2007,
pg. 1 - referred to . F
.-J,
3. The question as to whether the nature of a travelling
expenditure incurred by the appellant would attract the
benefits sought to be granted by the statute did not and
could not fall for consideration of the AAR. Its opinion was G
sought for only on one issue. It necessarily had to confine
itself to that one and no other. No material in this behalf
.;4
_.J. was brought on record by the parties. Whether the
payments were made to them on a regular basis or whether
the expenditures incurred which strictly come within the
H
810 SUPREME COURT REPORTS [2008] 7 S.C.R.

A purview of Section 115WB or not must, therefore, be
answered having regard to the materials placed on
records. If any question arises as to whether the
agreement entered into by and between the appellant and
the employees concerned would attract, in given cases,
B the liability under Fringe Benefit Tax would have, thus, to
be determined by the Assessing Authority. [Para 28] .J...
[826-G; 827-A-B]
CIVIL APPELLATE JURISIDICTION : Civil Appeal No.
3326 of 2008.
c
From the Judgment and Order dated 13.12.2006 in AAR
No. 730/2006 of the Authority of Advance Ruildings (Income Tax,
New Delhi)
S. Ganesh, H. Raghavendra Rao and Arijit Prasad for the
D Appellant
GE. Vahanvati Solicitor General, Devadatt Kamat and BV
Balaram Das for the Respondent
The Judgment of the Court was delivered by
E
S.B. SINHA, J. 1. Leave granted.
2. Interpretation and/or application of the provisions of
Section 115WB of the Income Tax Act, 1961 (for short, 'the Act')
providing for imposition of tax on 'fringe benefits' is in question
F herein.
3. Before embarking upon the said question, however, we
may notice the basic fact of the matter.
Appellant is incorporated under the laws of the
G Commonwealth of Australia. It is engaged in the business of
providing Mobile Offshore Drilling Rig (MOOR) along with crew
on a day rate charter hire basis to drill offshore wells. The MOOR
operates offshore (upto 200 nautical miles off the coast of India).
...
Allegedly, having regard to the harsh working environment and
H purported to be in line with global practices typical to such
R & B FALCON (A) PVT. LTD. v. COMMISSIONER OF 811
INCOME TAX [S.B. SINHA, J.]

industry, the employees who may be residents of various A
countries including Australia, USA, UK, France etc. work on the
MOOR on a 'commuter basis'. They come to India, stay in the
Rig for 28 days and go back to their own country being their
place of residence for a further period of 28 days. The crew or
the. employees are transported from their home country to the B
MOOR in two laps :

first is from the nearest designated base city at the
place of residence in the home country to a
designated city in India (Pr which the petitioner
provides free air tickets of economy class and; c
second is from that city in India to the MOOR through
helicopter especially hired by the petitioner for this
purpose.

4. Allegedly, on completion of 28 days, they go back from D
'r- the Rig to the designated base city in their home country in the
same manner. Appellant states that no convey~nce/transport
allowance is paid to them.

Appellant entered into a contract of supplying MOOR along E
with equipment and offshore crew on charter hire basis with Oil
and Natural Gas Commission, a public sector undertaking, on
or about 10.10.2003. It filed an application under Section
2450(1) of the Income Tax Act, 1961 before the Authority for
Advance Ruling (AAR) on the following question :
F
____. "Whether transportation cost incurred by the petitioner
'
in providing transportation facility for movement of
offshore employees from their residence in home
country to the place of work and back is liable to Fringe
Benefit Tax?" G

5. Chapter XII of the Act providing for income tax on fringe
-'4 benefits was inserted by the Finance Act, 2005. It came into
,,/,
force with effect from 1.4.2006.
6. Section 115W defines "employer" and "fringe benefit H
812 SUPREME COURT REPORTS (2008] 7 S.C.R.

A tax". "Fringe Benefit Tax" (FBT) has been defined as a tax
chargeable under Section 115WA.

Section 115 WA(1) provides for the basis for charge of
fringe benefit tax in the following terms :

B "115WA.(1) In addition to the income-tax charged under
this Act, there shall be charged for levy assessment year
commencing on or after the 1st day of April, 2006,
additional income-tax (in this Act referred to as fringe
benefit tax) in respect of the fringe benefits provided or
c deemed to have been provided by an employer to his
employees during the previous year at the rate of thirty per
cent on the value of such fringe benefits.
(2) Notwithstanding that no income-tax is payable by an
employer on his total income computed in accordance
D with the provisions of this Act, the tax on fringe benefits
shall be payable by such employer."
Section 11 SWB consists of three sub-sections, the relevant
clauses whereof read as under:
E "Section 115WB - Fringe benefits (1) For the purposes
of this Chapter, "fringe benefits" means any consideration
for employment provided by way of-

(a} any privilege, service, facility or amenity, directly or
indirectly, provided by an employer, whether by way
F
of reimbursement or otherwise, to his employees
(including former employee or employees);
(b) any free or concessional ticket provided by the
employer for private journeys of his employees or
G their family members; and
xxx xxx xxx
(2) The fringe benefits shall be deemed to have been
provided by the employer to his employees, if the employer
H has, in the course of his business or profession (including
R & B FALCON (A) PVT. LTD. v. COMMISSIONER OF 813
INCOME TAX [S.B. SINHA, J.]

any activity whether or not such activity is carried on with A
the object of deriving income, profits or gains) incurred
any expense on, or made any payment for, the following
purposes, namely:-

(A)· entertainment;
B
. .J. xxx xxx xxx
(F) conveyance;

xxx xxx xxx
(Q) tour and travel (including foreign travel).; c
(3) For the purposes of sub-section (1 ), the privilege,
service, facility or amenity does not include perquisites in
respect of which tax is paid or payable by the employee
or any benefit or amenity in the nature of free or subsidised
0
transport or any such allowance provided by the employer
to his employees for journeys by the employees from their
residence to the place of work or such place of work to the
place of residence".

7. Before the AAR, a circular issued by the Central Board E
of Direct Tax (CBDT) bearing No.8 of 2005, was relied upon
by both the parties. We will refer to a part of it. The circular
provides for explanatory notes on provisions relating to fringe
benefit tax.
F
The object for imposition of the said tax is stated to be as
--+ under:

'The taxation of perquisites or fringe benefits is justified
both on grounds of equity and economic efficiency. When
fringe benefits are under-taxed, it violates both horizontal G
and vertical equity. A taxpayer receiving his entire income
in cash bears a higher tax burden in comparison to another
taxpayer who receives his income partly in cash and partly
in kind, thereby violating horizontal equity. Further, fringe
benefits are generally provided to senior executives in the H

l
814 SUPREME COURT REPORTS [2008] 7 S.C.R.

A organization. Therefore, under-taxation of fringe benefits
also violates vertical equity. It also discriminates between
companies which can provide fringe benefits and those
which cannot thereby adversely affecting market structure.
However, the taxation of fringe benefits raises some
B problems primarily because-
(a) all benefits cannot be individually attributed to
employees, particularly in cases where the benefit is
collectively enjoyed;

c (b) of the present widespread practice of providing
perquisites, wherein many perquisites are disguised
as reimbursements or other miscellaneous expenses
so as to enable the employees to escape/reduce
their tax liability; and
D (c) of the difficulty in the valuation of the benefits."
8. The heading of paragraph 11 of the said circular is
,, -
"Frequently asked questions". The questions which were posed
and answered and in turn are relevant for our purpose read as
E under:
"In terms of the provisions of sub-section (1) of Section
115WA, an employer in India is liable to FBT in respect of
the value of fringe benefits-
(a) Provided by him to his employees; and
F
(b) Deemed to have been provided by him to his +-
employees.
The scope of fringe benefits provided or deemed to have
beeri provided is defined in section 115WB. Sub-section
G
(1) of the said section defines the scope of fringe benefits
provided by the employer to his employees. Similarly, sub-
section (2) of the said section defines the scope of fringe .....
benefits deemed to have been provided by the employer
to his employees. Therefore, sub-section (2) expands the
H
R & 8 FALCON (A) PVT. LTD. v. COMMISSIONER OF 815
INCOME TAX [S.B. SINHA, J.]

scope of sub-section (1) through a deeming provision. A
The provision relating to the computation of the value of
the fringe benefits is contained in section 115WC. It is a
settled principle of law that where the computation
provisions fail, the charging section cannot be effectuated.
8
Therefore, if there is no provision for computing the value
of any particular fringe benefit, such fringe benefit, even if
it may fall within clause (a) of sub-section (1) of section
115WB, is not liable to FBT.
xxx xxx xxx c
19. FBT is payable in the year in which the expenditure is
incurred irrespective of whether the expenditure is
capitalized or not. However, the same expenditure will not
be liable to FBT again in the year in which it is amortized
and charged to profit. D
Is FBT payable by an Indian Company having
employees based both in and outside India on its total
(global) expenditure incurred by it for the purposes
referred to in clauses (A) to (P) of sub-section (2) of section E
1158?
20. FBT is payable on the value of fringe benefits provided
or deemed to have been provided to employees based in
India and determined on a presumptive basis in
accordance with the provisions of Section 115WC of the F
Income-tax Act. The value of such fringe benefits is
determined, inter alia, as a proportion of the total amount
of expenses incurred for some identified purposes. In the
case of an Indian company having employees based both
in India and in a foreign country, FBT is payable on the G
proportion (50 per cent, 20 per cent or 5 per cent, as the
case may be) of the total amount of expenses incurred for
the purposes referred to in clauses (A) to (P) of sub-section
(2) of section 115WB and attributable to the operations in
India. If the company maintains separate books of account H
816 SUPREME COURT REPORTS (2008] 7 S.C.R.

A for its Indian and foreign operations, FBT would be payable
on the amount of expenses reflected in the books of
account relating to the Indian operations. If however, no
separate accounts are maintained, the amount of
expenses attributable to Indian operations would be the
B proportionate amount of the global expenditure. Further,
such proportionate amount shall be determined by applying
to the global expenditure the proportion which the number
of employees based in India bears to the total worldwide
employees of the company.
c Whether an Indian company carrying on business outside
India would be liable to FBT even though none of its
employees in such business may be liable to pay income
tax in India?

0 21. An Indian company would be liable to the FBT in India
if it has employees based in India. Therefore, if an Indian '",
company carries on business outside India but does not
have any employees based in India, such company would
not be liable to FBT in India.
E Does FBT apply to foreign companies?
xxx xxx xxx
103. FBT is a liability qua employer. It is an expenditure
laid out or expended wholly and exclusively for the
F purposes of the business or profession of the employer.
However, sub-clause (ic) of clause (a) of section 40 of
the Income-tax Act expressly prohibits the deduction of
the amount of FBT paid, for the purposes of computing
the income under the head profits and gains of business
G or profession. This prohibition does not apply to the
computation of book profit for the purposes of section
115JB. Accordingly, the FBT is an allowable deduction in
the computation of book profit under section 11 SJB of the
Income-tax Act.
H
R & 8 FALCON (A) PVT. LTD. v. COMMISSIONER OF 817
INCOME TAX [S.8. SINHA, J.]
---+ Whether expenditure incurred by the employer for the A
purposes of providing free or subsidized transport for
journeys to employees from their residence to the place of
work or such place of work to the place of residence would
attract FBT?"
B
9. AAR by reason of its judgment and order dated
~
13.12.2006 holding that the company is liable to pay fringe
benefit tax for providing transportation and movement of offshore
employees for their residence and home countries outside India
to the place of rig and back, opined that
c
(1) The exemption provision contained in sub-section
(3) of Section 115WB is restricted to sub-section (1)
whereas the exemption falls under the deeming
provision contained in sub-section (2);
D
(2) Residence within the meaning of the said provision
- "r would mean residence in India and as the employees
concerned are residents of the countries outside
India, sub-section (3) of Section 115WB is not
applicable.
E
10. Mr. S. Ganesh, learned counsel appearing on behalf
of the appellant, would submit;
(1) The AAR committed an error of law insofar as it failed
to consider that sub-section (3) covers both the
contingencies envisaged under sub-sections (1) and F
, _,. (2);
(2) The distinction between sub-sections (1) and (2) is
highly artificial inasmuch as the exemption is provided
for in clauses (F) and (Q) of sub-section (2) of Section G
115WB and unless the said provisions are read
into sub-section (3), the same would be rendered
•• ,,(
otiose;
(3) While granting exemption, the Parliament having not
restricted the operation of sub-section (3) only to the H
818 SUPREME COURT REPORTS [2008] 7 S.C.R.

~-
A regular employees or the transport provided by the
employer, no restrictive meaning can be given to
sub-section (3).
(4) Residence of an employee being not restricted to
the Territory of !ndia, the AAR committed a serious
B
error of law in passing the impugned judgment. ,l.
(5) CBDT itself, in its circular, having clarified that sub-
section (2) i!,; merely an expansion of sub-section
(1 ), it was impermissible for the AAR to take the said
c factor into account.
(6) From the ~uestions and answers contained in the
said circula.·, it is evident that fringe benefit tax
would be appiicable on the value of fringe benefit
provided or deemed to have been provided to
D employees based in India and no fringe bent:fit tax
would be payable in respect of an expenditure
.,.. -
incurred by the employer for an employee who is not
based in India and in any event if the employee is
based in a foreign country would also come within
E the purview thereof.
(7) The MR is clearly wrong in holding that the word
'residence' would mean only residence in India.
11. Mr. G.E. Vahanavati, learned Solicitor General
F appearing on behalf of the respondent, on the other hand, would
urge: 't- •

(A) Fringe benefit tax is a new concept in terms whereof
any consideration for employees provided, inter alia,
for facility or amenity comes within the purview thereof;
G
and
(B) The tax is payable only when the employer incurs an
expenditure delineated in sub-section (2) and such
exemption is to be granted only on the tax leviable
~
. '

H under sub-section (1).
•
R & 8 FALCON (A) PVT. LTD. v. COMMISSIONER OF 819
INCOME TAX [S.8. SINHA, J.]
~--t
(C) The terms 'residence', 'transport', 'conveyance' etc. A
must be given a broad meaning which would lead to
the conclusion that only when employees are provided
for transport on a regular basis for attending to their
work from the place of their residence to the place of
work, exemption should be granted. 8
J.
(D) The Parliament, in its wisdom, having used the words
'employees, journey, the same would only mean that
on any journey undertaken by the employees for
regularly attending the works and not on a work on
periodic basis. c
12. Fringe benefit tax is a new concept. The taxes to be
levied on the fringe benefit provided or deemed to have been
provided by an employer to employees during the previous year
is at the rate of 30 per cent on the value of such fringe benefits. D
~ 1' The object for imposition of the said tax, as is evident from the
said circular dated 29.8.2005, was to bring about an equity.
The intention of the Parliament was to tax the employer who, on
the one hand, deducts the expenditure for the benefit of the
employees including entertainment, etc. and on the other when E
the employees getting the perks are to be taxed, those who get
direct or indirect benefits from the expenditures incurred by the
employer, no tax is leviable. As stated in the objective, it is for
bringing about a horizontal equity and not a vertical equity.
13. Sub-section (1) of Section 115WB contains the F
~~ interpretation section. It is in two parts. It provides for a direct
meaning, as also an expanded meaning. Expanded meaning
of the said provision is contained in sub-section (2). Whereas
sub-section (1) takes within its sweep any consideration for
employment, inter alia, by way of privilege service, facility or G
amenity directly or indirectly, sub-section (2) thereof expands
, ~
the said definition stating as to when the fringe benefit would be
.~ deemed to have been provided. The expansive meaning of the
said term 'benefits' by reason of a legal fiction created also
brings within its purview, benefits which would be deemed to H
•
820 SUPREME COURT REPORTS [2008] 7 S.C.R.

A have been provided by the employer to his employees during
the previous year. Indisputably, sub-section (3) refers to sub-
section (1) only. Ex facie, it does not have any application in
regard to the matters which have been brought within the
purview of the fringe benefit tax by reason of application of the
B deeming provision. We are concerned here with a question in
regard to grant of exemption in respect of 'conveyance' as
provided for in clause (F) of sub-section (2) and 'tour and travel'
which is provided for in clause (Q) of sub-section (2) of Section
115WB.
c 14. CBDT categorically states in answer to question
number 7 that sub-section (2) provides for an expansive
definition.
Does it mean that sub-section (2) is merely an extension
D of sub-section (1) or it is an independent provision? If sub-
section (2) is merely an extension of sub-section (1 ), Mr. Ganesh
may be right but we must notice that Section 115WA provides
for imposition of tax on expenditure incurred by the employer or
providing its employees certain benefits. Those benefits which
E are directly provided are contained in sub-section (1). Some
other benefits, however, which the employer provides to the
employees by incurring any expenditure or making any payment
for the purpose enumerated therein in the course of his business
or profession, irrespective of the fact a!? to whether any such
F activity would be carried on a regular basis or not, e.g.,
entertainment would, by reason of the legal fiction created, also
be deemed to have been provided by the employer for the
purpose of sub-section (2). Whereas sub-section (1) envisages
any amount paid to the employee by way of consideration for
G employment, what would be the limits thereof are only
enumerated in sub-Section (2). We, therefore, are of the opinion
that sub-sections (1) and (2), having regard to the provisions of
Section 115WAas also sub-section (3) of Section 115WB, must t '
be held to be operating in different fields.
H 15. We must test the submissions of Mr. Ganesh from
R & B FALCON (A) PVT. LTD. v. COMMISSIONER OF 821
INCOME TAX [S.B. SINHA, J.]
,._,j.

another angle. The learned counsel contended that any benefit A
or amenity in the nature of free or subsidized transport provided
by the employer to his employee for the purposes mentioned in
sub-section (3) are to be found only in clauses (F) and (Q) of
sub-section (2) and if that be so, the statute must be held to
envisage grant of exemption in respect of matters which do not B
form the subject matter thereof.

We have noticed the factual matrix of the instant case. The
employees concerned are experts in their field. They are
necessarily residents of other country. They are brought to the
Rig by providing air tickets for their coming from their place of
c
residence to the Rig.

The employer incurs the said expenditure as of necessity.
It, therefore, clearly falls within the purview of the words
'consideration for employment'. If fringe benefits are provided D
~~
for consideration for employment, which is given or provided to
the employee by way of an amenity, reimbursement or otherwise;
clearly clause (a) of sub-section (1) shall be attracted.

A statute, as is well known, must be read in its entirety.
What would be the subject matter of tax is contained in sub- E
sections (1) and (2). Sub-section (3), therefore, provides for an
exemption. There cannot be any doubt or dispute that the latter
part of the contents of sub-section (3) must be given its logical
meaning. What is sought to be excluded must be held to be
included first. If the submission of learned Solicitor General is F
--~ accepted, there would not be any provision for exclusion from
payment of tax any amenity in the nature of free or subsidized
transport.

16. Thus, when the expenditure incurred by the employer
G
so as to enable the employee to undertake a journey from his
place of resiElence to the place of work or either reimbursement
. I
of the amount of journey or free tickets therefor are provided by
" him, the same, in our opinion, would come within the purview of
the term 'by way of reimbursement or otherwise'.
H
822 SUPREME COURT REPORTS [2008] 7 S.C.R.

.\....•
A The Advanced Law Lexicon defines "otherwise" as:
"By other like means; contrarily; different from that to which
it relates; in a different manner; in another way; in any
other way; differently in other respects in different respects;
in some other like capacity."
B
~
"Otherwise" is defined by the Standard Dictionary as
meaning 'in a different m'anner, in another way; differently in
other respects'; by Webster, 'in a different manner; in other
respects'.
c As a general rule, 'otherwise' when following an
enumeration, should receive an ejusdem generis interpretation
(per CLEASBY, B. Monck v. Hilton, 46 LJMC 167, The words
'or otherwise', in law, when used as a general phrase following
..
an enumeration of particulars, are commonly interpreted in a t
D restricted sense, as referring to such other matters as a are
""('.
kindred to the classes before mentioned, (Cent. Diet.)"
17. It is now a well settled principle of law that a statute
should ordinarily be given a purposive construction. {See New
E India Assurance Company Ltd. v. Nusli Neville Wadia and
Anr. [2007 (14) SCALE 556]; Tanna and Modiv. C.I. T., Mumbai
XXV and Ors. [2007 (8) SCALE 511] and Udai Singh Dagar
and Ors. v. Union of India (UOI) and Ors. [2007 (7) SCALE
278]}.
F 18. The Parliament, in introducing the concept of fringe
benefits, was clear in its mind in so for as on the one hand it ...
avoided imposition of double taxation, i.e., tax both on the hands
of the employees and employers; on the other, it intended to ,
:-
bring succour to the employers offering some privilege, service,
G facility or amenity which was otherwise thought to be necessary
or expedient. If any other construction is put to sub-sections (1)
and (3), the purpose of grant of exemption shall be defeated. If I .
~
the latter part of sub-section (3) cannot be given any meaning, it
will result in an anomaly or absurdity. It is also now a well settled
H principle of law that the court shall avoid such constructions which
R & B FALCON (A) PVT. LTD. v. COMMISSIONER OF 823
INCOME TAX [S.B. SINHA, J.]
k~
would render a part of the statutory provision otiose or A
meaningless. [See Visitor and Ors. v. K. S. Misra [(2007) 8 sec
593]; Commissioner of Sa/es Tax, Delhi and Ors. v. Shri
Krishna Engg. Company and Ors. [(2005) 2 SCC 692].
19. We, therefore, are of the opinion thatAAR was right in
B
J. its opinion that the matters enumerated in sub-sectior:i (2) of
Section 115WB are not covered by sub-section (3) thereof, and
the amenity in the nature of free or subsidized transport is
covered by sub-section (1 ).

20. It brings us to the next question, namely, whether the c
employee concerned should be a resident of India. The statute
does not say so. Fringe benefit tax being a tax on expenditure;
the only concern of the revenue wherefor should be as to whether
such expenditure has been made. Appellant has a permanent
establishment in India. It pays income-tax in India. It carries on D
.,--,.. business in India. It has for the purpose of carrying out its
business activities engaged persons from within India or outside
lr.idia. If it makes any expenditure for bringing any employee from
abroad, the same would also be liable to be taken into
consideration for the purpose of sub-section (1) of Section E
115WB.

21. AAR with respect was not correct in its view in
reading the words 'in India' after the word residence in sub-
section (3).
F
22. If the reasonings of the AAR are taken to its logical
--~ conclusion, the CBDT circular would not be attracted. An
employer cannot afford to loose on both the fronts. Its right to
claim exemptions either would be in respect of the employees·
who are based in India or who are not. If the said employees
G
are required to be based in India, sub-section of Section 115WB
...i.. would not be attracted. However, if such expenditure incurred is
. t found to be as consideration for employment, the same would
A
also bring within its purview the employees who have been hired
from outside the country. For the purpose of obtaining the benefit
H

'
824 SUPREME COURT REPORTS [2008] 7 S.C.R.

A of the said exemption, however, the expenditure must be
incurred on the employees directly for the purposes mentioned
therein, namely, they are to be provided transport from their
residence to the place of work or such place of work to the place
of residence. Any expenditure incurred for any other purpose,
B namely, other than for their transport from their residence to the
place of work or from the place of work to the place of residence
would not attract the exemption provision. The Assessing
Authority, therefore, must, in each case, would have a right to
scrutinize the claim.
c CBDT has the requisite jurisdiction to interpret the
provisions of Income-tax Act. The interpretation of CBDT being
in the realm of executive construction, should ordinarily be held
to be binding, save and except where it violates any provisions
of law or is contrary to any judgment rendered by the courts.
D The reason for giving effect to such executive construction is
not only same as contemporaneous which would come within
the purview of the maxim temporania caste pesto, even in certain
situation a representation made by an authority like Minister
presenting the Bill before the Parliament may also be found
E bound thereby.

23. Rules of executive construction in a situation of this •
nature may also be applied. Where a representation is made
by the maker of legislation at the time of introduction of the Bill
...
F or construction thereupon is put by the executive upon its coming
into force, the same carries a great weight.

24. In this regard, we may refer to the decision of the House
of Lords in the matter of R. V National Asylum Support Service
[(2002) 1 W.L.R.2956] and its interpretation of the decision in
G Pepper v. Hart [(1993) A.G. 593]. on the question of 'executive
estoppel'. In the former decision, Lord Steyn stated:-

"lf exceptionally there is found in the Explanatory Notes a
clear assurance by the executive to Parliament about the
meaning of a clause, or the circumstances in which a
H
R & B FALCON (A) PVT. LTD. v. COMMISSIONER OF 825
INCOME TAX [S.B. SINHA, J.]
IL~
power will or will not be used, that assurance may in A
principle be admitted against the executive in proceedings
in which the executive places a contrary contention before
a court."

25. A similar interpretation was rendered by Lord Hope of
B
t..A.. Craighead in Wilson v. First County Trust Ltd., [2004) 1 A.C.
816, wherein it was stated:-

"As I understand it [Pepper v. Hart], it recognized a limited
exception to the general rule that resort to 'Hansard' was
inadmissible. Its purpose is to prevent the Executive c
seeking to place a meaning on words used in legislation
which is different from that which ministers attributed to
whose words when promoting the legislation in
Parliament. .. "
For a detailed analysis of the rule of executive estoppel D
~ )'--
useful reference may be to the article authored by Francis
Bennion entitled "Executive Estoppel: Pepperv. Hart revisited",
published in Public Law, Spring 2007, pg. 1 which throws a new
light on the subject matter.
E
26. We may notice a decision of this Court in Sedco Forex
International Drill. Inc. & Ors. v. Commissioner of Income Tax,
I
Dehradun & Anr. [(2005) 12 SCC 717], the question which
arose therein was as to the salary paid to the employees of
UK National Services for field breaks outside India would be
F
subjected to tax under Section 9(1 )(ii) and explanation
' ""Y
appended thereto as inserted in 1983w.e.f1.4.1979. Appellant
therein entered into agreements which are executed in the
United Kingdom with each of the said employees who were
residents of the said country. This Court, upon noticing the
G
explanation appended to Section 9(1 )(ii), as regards its
retrospective operation, held:
,J "16. The departmental understanding of the effect of the
1999 Amendment even if it were assumed not to bind the
respondents under Section 119 of the Act, nevertheless H
826 SUPREME COURT REPORTS [2008] 7 S.C.R.

' - ,1
A affords a reasonable construction of it, and there is no
reason why we should not adopt it.

17. As was affirmed by this Court in Goslino Mario a
cardinal principle of the tax law is that the law to be applied
is that which is in force in the relevant assessment year
B
unless otherwise provided expressly or by necessary ...._ ,
implication. (See also Reliance Jute and Industries Ltd.
v. CIT) An Explanation to a statutory provision may fulfil
the purpose of clearing up an ambiguity in the main
provision or an Explanation can add to and widen the
c scope of the main section. If it is in its nature clarificatory
then the Explanation must be read into the main provision
with effect from the time that the main provision came into
force. But if it changes the law it is not presumed to be
retrospective, irrespective of the fact that the phrases used
D are "it is declared" or "for the removal of doubts"."
"'\'~
27. It was categorically held that as the explanation sought
to give an artificial meaning to "earned in India" and brings about
a change effectively in the existing law, it should not be held to
E have any retrospective operation. Section 11 SWB does not
contain such a provision. It must, therefore, be given its natural
meaning. It would, therefore, be difficult to accept the contention
of the learned Solicitor General that the employees must be
based in India.
F 28. However, it appears that the contention that such
expenditure should be paid on a regular basis or what would be ,,,, .
the effect of the words 'employees journey' did not fall for
consideration of AAR. What, therefore, is relevant would be the
nature of expenses. The question as to whether the nature of a
G travelling expenditure incurred by the appellant would attract the
benefits sought to be granted by the statute did not and could
not fall for consideration of the AAR. Its opinion was sought for
only on one issue. It necessarily had to confine itself to that one ),..

and no other. No material in this behalf was brought on record
by the parties. Whether the payments were made to them on a
R & B FALCON (A) PVT. LTD. v. COMMISSIONER OF 827
INCOME TAX [S.B. SINHA, J.]

regular basis or whether the expenditures incurred which strictly ~.
come within the purview of Section 115WB or not must, therefore,
be answered having regard to the materials placed on records.
If any question arises as to whether the agreement entered into
by and between the appellant and the employees concerned
would attract, in given cases, the liability under FBT benefit tax e
would have, thus, to be determined by the assessing authority.
29. The appeal is allowed to the aforementioned extent
and with the aforementioned observations. In the facts and
circumstances of this case, there shall be no order as to costs.
c
K.K.T. Appeal partly allowed.

-
I i 'r